 Energy Transition Under the New NAFTA: Challenges in the Critical Minerals Supply ChainJohn P. Hayes and
Alem Cherinet
SPP Briefing Papers, 2023, vol. 16, issue 22 Abstract: Demand for critical minerals, battery metals, and the nearshoring of electric vehicle (EV) manufacturing have implications for all trading partners of the updated North American Free Trade Agreement, now called the United States-Mexico-Canada Agreement (USMCA). North American EV manufacturing is driven by initiatives such as the battery belt in the US and Canada’s commitment to clean technology. Mexico, as a major auto-component manufacturer and producer of critical minerals, holds a significant role in supporting the regional supply chain. However, recent developments in Mexican natural resource policy, including the nationalization of lithium deposits and exploration moratoriums, present challenges for foreign miners operating in Mexico, including the risk of future limited participation in the mining sector. Canadian miners hold a dominant role in Mexican mineral exploration, and Mexico is Canada’s third-largest trading partner. The political landscape in Mexico, with the ruling Morena party controlling both the national government and majority of state governments, further complicates the situation. Policy changes in 2023 to the mining sector’s regulatory requirements are the most significant reforms to the sector since the early 1990s. The reforms are in response to prominent, long-standing grievances from various non-industry stakeholders and seek to mitigate against future negative social and environmental impacts of mining. The reforms include shorter mining concession permits, stricter environmental impact assessments, and new permitting procedures on water use. Considering these dynamics, this paper presents three policy considerations for Canadian mining sectors engagement in the USMCA: 1. Re-evaluate the approach to commodity market integration under the USMCA. Given the act’s protectionist tendencies, Canada and Mexico should leverage the scaling-up of battery-metals production to improve their trade positions. This could involve wider exemptions from “Buy American†provisions and negotiations beyond the mining sector. 2. Emphasize royalty opportunities at the negotiating table. Despite limited public support for mining, state control of mining operations is more favourably viewed by Mexican voters. Canada would work with the Mexican government to explore fiscal negotiations that contribute to equitable arrangements and support Mexico’s social development agenda. 3. Strengthen Canadian diplomacy and responsible mining practices. Canadian mining operators should prioritize good governance and responsible practices in their operations in Mexico. This includes building stronger relationships with local communities, municipal governments, and authorities, while implementing free, prior, and informed consent principles. Community engagement and collaborative governance will be essential to rebuilding trust and ensuring a more equitable future. Overall, the successful integration of the North American vehicle production supply chain depends on navigating the relationship between the Canadian and Mexican mining sectors. By addressing the challenges and opportunities presented, Canadian miners can contribute to the development of sustainable and mutually beneficial North American EV manufacturing. Date: 2023 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:clh:briefi:v:16:y:2023:i:22 Access Statistics for this article More articles in SPP Briefing Papers from The School of Public Policy, University of Calgary Contact information at EDIRC. |
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